AUD/USD fails to crack 0.6800 and retraces toward 0.6730s on a strong USD

The Australian Dollar (AUD) snapped three days of gains and dropped 0.84%, following last Friday’s US producer’s inflation data, ahead of the release of the Consumer Price Index (CPI) in the United States (US). An upbeat sentiment that usually bolsters the AUD/USD keeps the AUD pressured. Therefore, the AUD/USD is trading at 0.6735 after hitting a daily high, shy of the 0.6800 figure.

US Consumer Price Index looming, a headwind for the AUD/USD

Risk appetite improved, as shown by US equities rising. The lack of economic data from the US and Australia kept investors digging into last week’s US economic data. The Department of Labor revealed last Friday that the Producer Price Index (PPI) rose for three consecutive months, exceeding expectations on an annual base. At 7.4% year-over-year and 6.2%, excluding food and energy prices, such figures indicate inflation being stubbornly stickier than expected. Also, the consumer sentiment improved to 59.1 from 56 .8 according to the University of Michigan’s data released Friday, although inflation projections dropped slightly, with one-year horizon forecasts dropping to 4.6% from 4.9%.

The US Consumer Price Index (CPI) could be a catalyst in determining the AUD/USD pair direction. The CPI is expected to decrease from 7.7% YoY to 7.3%, while core CPI is foreseen to fall from 6.3% to 6%. If findings indicate cooling inflation conditions, it may result in the US Dollar weakening further.

The Australian side's lack of economic data leaves the AUD adrift to market sentiment and China’s developments. Despite re-opening many areas in China, investors remain cautious about making decisions with uncertainties surrounding how rising Covid cases could affect economic activity. Recently, Chinese authorities have taken steps such as shutting down their tracking app and removing all “at risk” decrees from Shanghai effective December 13th, hopefully providing further insight into future developments.

On Tuesday, the Australian economic calendar will feature Business Confidence and Business Conditions, both released revealed by the National Bank of Australia. This comes in anticipation of the upcoming US Consumer Price Index (CPI) release on Tuesday and the Federal Reserve’s monetary policy decision on Wednesday.

AUD/USD Key Technical Levels